Vanguard Loses $1 Million in Short Sales

A Vanguard Group mutual fund lost about $1 million in April while engaged in short-selling, a technique that is rarely used in the fund industry. The short sales by the Vanguard Horizon Fund Capital Opportunity Portfolio represented a bet that technology stocks would fall. Tech stocks rose instead, forcing the fund’s outside advisor, Husic Capital Management, to terminate the short sales at a loss, according to a Vanguard shareholder report filed with the Securities and Exchange Commission. Vanguard replaced Husic after the capital opportunity portfolio recorded a 3% loss for the year ended Oct. 31, 1997, compared with a total return of 24.9% for an index of similar aggressive growth funds. While the short-sale losses accounted for only a fraction of the fund’s underperformance, Chairman John C. Bogle sounded less than pleased with the practice. “It did not work out well at all,” he said.